Recent developments may usher new era of advisor independence
Financial advisors in Canada could soon find it much easier to work independently of large brokerage firms – a rapidly growing trend in the United States – amid changing regulations and advances in investment-management technology that makes going it alone more convenient and cost-effective.
A turnkey asset management program (TAMP) ecosystem is being developed in Canada, providing advisors with the technology and tools to become an independent investment counsellor portfolio manager (ICPM).
TAMPs are independent technology platforms that offer advisors the ability to outsource activities such as account setup and documentation as well as discretionary portfolio management.
TAMP technology is behind the fast-growing registered investment advisor (RIA) business model in the U.S., which enables advisors to operate independently of large brokerage firms and provide a legal fiduciary obligation to clients. Canada has been slower to follow due to limited technology, fewer custodial options and lack of TAMP offerings – but that’s slowly starting to change.
Jason Pereira, partner and senior financial consultant at Woodgate Financial Inc., a financial planning firm under the IPC Securities Corp. umbrella in Toronto, says he’s aware of at least a half-dozen advisory firms looking to adopt the TAMP model in the coming months. That, in turn, would support a move for them to provide advisors greater independence.
“The change could provide the tools for more advisors working in traditional distribution models to move over to the ICPM world,” Mr. Pereira says.
The RIA model is similar to the ICPM structure in Canada, but only a small portion of the advisor population in this country is certified as an ICPM today. There are several differences between the ICPM and the RIA model, including that licensing requirements are higher in Canada, Mr. Pereira says.
Another key development that would help Canadian advisors become independent is a recent recommendation from the Ontario Securities Commission (OSC), as part of changes to reduce the regulatory burden for businesses that operate in Ontario’s capital markets, that would enable companies to outsource the role of chief compliance officer (CCO).
Specifically, the OSC report says that firms in “appropriate circumstances” will be able to outsource the CCO role. The regulator is planning on publishing additional information for firms “shortly to facilitate this process,” says Kristen Rose, manager of public Affairs, in a statement sent by e-mail.
Mr. Pereira says it’s one of the hurdles that need to be cleared for a U.S.-equivalent RIA model to rise and thrive in Canada.
“We’re not there yet. What we need is those obstacles to be reduced, which is hopefully happening shortly,” says Mr. Pereira, who wrote a column for Globe Advisor in August 2019 on the advantages of the RIA business model.
Once Canada has an established TAMP ecosystem in place, and if regulations allow for the outsourcing of CCOs, he believes more advisors will go the independent route. The attraction is greater control over the business and more focus on client services with an ability to outsource services to a TAMP. It also means advisors would take in 100 per cent of the revenue, without paying out a portion to a dealer.
“It gives advisors greater control over their own business and destiny,” Mr. Pereira says.
Toronto-based Purpose Advisor Solutions, established in 2018, has recently launched a TAMP business in Canada. (The firm provides the technology back end while investment-management services are run through its registered entity, Harness Investment Management Inc.)
Jeff Gans, chief executive officer of Purpose Advisor Solutions, says his company allows financial planners, accounting firms and other professionals to provide outsourced investment management to their clients. The company has added two initial partner firms and is looking to expand further in 2020, he says.
Mr. Gans describes his company as a “Shopify for advisors,” as they can use all or part of the services – including a customer relationship management (CRM) platform, digital account opening, portfolio management, reporting, compliance and trading, among others.
“We wanted to help fill the gaps,” he says. “By doing this for advisors, it makes it much easier for them to go out as an independent. It creates another business model option for advisors and it creates options for consumers … and will drive a better client experience.”
If the OSC does go ahead and introduce regulations to allow for the outsourcing of the CCO role, Mr. Gans says his company will also offer that service to its clients.
“Going out and starting your own business is a challenge,” he says. “We are putting things in place to simplify the transition for them, to operationalize their practice, to help finance it and put the technology in place.”
Another recent development is Winnipeg-based Wellington-Altus Private Wealth Inc. announcing in December it’s acquiring Calgary-based TriVest Wealth Counsel Ltd. as part of a broader plan to consolidate in the ICPM space.
Once the deal is finalized, which is expected in the coming weeks, Wellington-Altus will launch a subsidiary called Wellington-Altus Private Counsel Inc. to focus on the ICPM segment.
Mr. Hauser says the company’s move is part of an industry trend in which more portfolio managers and advisors are looking to provide independent and comprehensive wealth-management advice.
“The same reasons why RIAs exploded in the U.S. is the same reason why we are having success [attracting] advisors,” he says.
Meanwhile, Toronto-based investment giant CI Financial Corp. is investing in the RIA business model south of the border. In December, CI purchased a majority stake in California-based RIA One Capital, which specializes in managing money for high-net-worth individuals and families. In November, CI bought a majority stake in Phoenix-based Surevest Wealth Management, calling it the “first step” in its efforts to build “a significant and growing presence” in the U.S. RIA market.
In Canada, CI runs two large wealth-management businesses through Assante Wealth Management (Canada) Ltd. and CI Private Counsel LP. In the company’s quarterly conference call in early November, CI CEO Kurt MacAlpine cited similarities between how CI’s Canadian platforms and the U.S. RIA business, including a “very heavy” focus on client service, financial planning and investment management.
Originally published in The Globe Advisor.
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